Worries about the inverted yield curve have gone mainstream

Wonky finance has gone mainstream as mom and pop discover the yield curve.

Fear about the swiftly slimming spread between short and longer term Treasury yields is sparking a surge in interest about one of Wall Street’s favorite recession indicators.

Searches for “yield curve inversion” have recently spiked to the highest level on record, according to data from Google Trends going back to 2004.

“One of the most arcane finance terms ever is shooting up the list like ‘egg nog recipes,”’ said Michael Antonelli, a managing director at Robert W. Baird & Co, who pointed out the trend in a tweet.

Interest on Main Street spiked after the yield on five-year notes fell below that for three-year debt, marking the first inversion of any portion of the yield curve since 2007. The more closely-watched gap between two- and 10-year Treasury yields shrank to its lowest levels since then, as the slumping stock market fueled concern about the prospects for domestic activity.

When this spread turns negative, it can often indicate that traders anticipate the Federal Reserve will need to reduce interest rates in the near future in order to bolster a weakening economy.

There’s a little less cause for worry on that front Thursday, however: the 2s10s widened out to as much as 14 basis points from a low of less than 10 basis points.

Bank of Canada Governor Stephen Poloz isn't buying into a prominent Bay Street economist's recent warning that Canada could slide into recession next year, while likening risks to the economy as being akin to "fender benders," rather than major shocks.